When unforeseeable conflicts develop between clients in the course
of ongoing representation of both, without fault of the lawyer, and the
clients refuse to consent to simultaneous representation, which, if any,
client may the lawyer continue to represent? If the lawyer may continue
to represent one but not both clients, how does the lawyer decide which
client to continue representing?

2. INTRODUCTION

Conflicts that arise through no fault of the lawyer may develop in
the course of representing two or more clients in unrelated matters as
a result of corporate acquisitions or other unforeseeable circumstances.
In those situations, lawyers typically seek conflict waivers from the
affected clients, but in some instances a client may withhold consent
to the multiple representation. This opinion examines the lawyer's ethical
duties when confronted with such so-called "thrust upon" conflicts,
which are illustrated by the following two scenarios.

Scenario 1 : A law firm represents Client A in a breach of
contract suit against Company B. During the pendency of that suit, Client
C, a longtime ongoing client of the law firm, acquires Company B in a
stock sale, and Company B becomes a wholly owned subsidiary of Client
C. The law firm (which does not represent Client C in the acquisition
of B) informs Clients A and C that it wishes to continue to represent
each of them in their respective matters. Client A consents to a conflict
of interest waiver, but Client C does not. May the law firm continue
to represent at least one client, and if so, may the law firm choose
which client to represent?

Scenario 2 : A law firm has advised Client
A for several years regarding various intellectual property licensing
issues. The law firm has also advised Client B for several years on general
corporate transactional matters not involving intellectual property licensing,
including current negotiations with Company C to form a joint venture.
During the course of those negotiations, Client A acquires Company C.
Upon learning of the merger, the law firm seeks to obtain conflict of
interest waivers from Clients A and B so that it may continue to represent
both clients in their respective matters. Client A agrees to provide
the necessary conflict of interest waiver, but Client B does not. May
the law firm continue to represent at least one of the clients, and if
so, may the law firm choose which client to represent?

As these scenarios suggest, "thrust upon" conflicts often,
but do not always, arise as a result of changes in corporate ownership.
Also, they may arise in both litigation and transactional practice. While
in litigation a disqualification motion may as a practical matter resolve
the question, in any case a lawyer’s ethical duties exist independent
of court disqualification jurisprudence and a lawyer will have to guide
him or herself based on analysis of ethical obligations under the Code.
A lawyer faced with an unforeseen conflict that arises through no fault
of his or her own, the lawyer should be guided by the factors set forth
in this opinion when deciding from which representation to withdraw.

3.DISCUSSION

Lawyers have a duty to consider potential conflicts at the outset of
an engagement and to decline proffered employment when such conflicts
are likely. DR 5-105(A). Even careful conflicting-checking, however,
will not eliminate the risk of unforeseeable conflicts arising after
the lawyer or firm has commenced multiple representations. Under the
New York Code of Professional Responsibility (the “Code”),
a lawyer may not continue the concurrent representation of multiple
clients "if the exercise of independent professional judgment on
behalf of a client will be or is likely to be adversely affected by the
lawyer's representation of another client, or if it would be likely to
involve the lawyer in representing differing interests," DR 5-105(B),
unless the conflict is capable of being, and is, consented to under DR
5-105(C). This opinion addresses the requirements of DR 5-105(B) in the
case of "thrust upon" concurrent client conflicts. For purposes
of this opinion “thrust upon” conflicts are defined as conflicts
between two clients that (1) did not exist at the time either representation
commenced, but arose only during the ongoing representation of both clients,
where (2) the conflict was not reasonably foreseeable at the outset of
the representation, (3) the conflict arose through no fault of the lawyer,
and (4) the conflict is of a type that is capable of being waived under
DR 5-105(C),1 but one of the clients
will not consent to the dual representation. Although the "thrust
upon" conflict may be unforeseeable and arise through no fault of
the lawyer or law firm affected, when it gives rise to a concurrent conflict
under DR 5-105, the lawyer must nevertheless take action to avoid violation
of DR 5-105(B). The customary response to such conflicts is for the lawyer
to withdraw as necessary to avoid the conflict. See DR 2-110(B)(2).
The Code does not, however, expressly address the case of "thrust
upon" conflicts, nor does it specify under DR 2-110 from which representation(s)
the attorney should withdraw in order to cure the conflict.

Nor has this dilemma been addressed directly by New York ethics opinions
construing the Code. A growing body of case law, however, has dealt with "thrust
upon" conflicts in litigation, applying a flexible approach that
is consistent with the Code and should be used as a guide to resolving
such conflicts, within the limits set forth in this opinion.

A. A lawyer faced with an apparent "thrust upon" conflict
should first determine whether a concurrent conflict under DR 5-105 exists

When client relationships change during the course of a representation,
the lawyer should first determine whether the changed circumstances create
an actual conflict. As Scenarios 1 and 2 above, as well as case law2 suggest,
corporate transactions are often sources of apparent "thrust upon" conflicts.
In such cases, an apparent conflict may arise during the representation
of two formerly unrelated clients when one becomes a member of the same
corporate family (e.g., an affiliate, subsidiary, parent, or sister corporation)
as another client's adversary. Representation of one member of a corporate
family, however, does not automatically constitute representation of
another member of the same corporate family. For the purposes of the
ethics rules, a current client's adversary that, due to a merger or acquisition,
has become the parent or subsidiary of another client, may not be considered
a "client" at all. And if the apparent conflict does not actually
involve two current clients, there is no conflict of interest under DR 5-105,
and the attorney does not need to obtain consent from both clients in
order to continue representing both.

Previous opinions have articulated the circumstances under which an
apparent conflict involving a member of a current client's corporate
family will be considered an actual conflict of interest requiring consent
to continue representing both parties. This determination is based on
several factors, including the relationship between the two corporate
entities, and the relationship between the work the law firm is doing
for the current client and the work the law firm wishes to undertake
in opposition to the client's corporate family member. SeeEastman
Kodak Co. v. Sony Corp., 2004 WL 2984297 at *3 (W.D.N.Y. Dec. 27,
2004) (“[t]he relevant inquiry centers on whether the corporate
relationship between the two corporate family members is ‘so close
as to deem them a single entity for conflict of interest purposes’”); Discotrade
Ltd v. Wyeth-Ayerst Int'l, Inc ., 200 F.Supp.2d 355, 358-59 (S.D.N.Y.
2002) (concluding that a corporate affiliate was also a client
for conflict purposes because, among other things, the affiliate was
an operating unit or division of an entity that shared the same board
of directors and several senior officers and used the same computer network,
e-mail system, travel department and health benefit plan as the client); J.P.
Morgan Chase Bank v. Liberty Mutual Insurance Co., 189 F.Supp.2d
20, 21 (S.D.N.Y. 2002) (concluding that a subsidiary of a corporate client
is also a client for conflicts purposes because “the relationship
[between the two] is extremely close and interdependent, both financially
and in terms of direction;” among other things they operated from
the same headquarters, shared the same board of directors, and the general
counsel (and senior vice president) of the parent was also the general
counsel (and senior vice president) of the subsidiary). See also N.Y.
City Eth. Op. 2003-03 (whether a corporate affiliate is a client for
conflicts purposes “will depend on many factors, including the
relationship between the two corporations and the relationship between
the work the law firm is doing for the current client and the work the
law firm wishes to undertake in opposition to the client’s corporate
family member”); See also ABA Formal Op. No. 95-390 (1995) (factors
as to whether a corporate affiliate of a client is also considered a
client include whether the subject matter of the representation involves
the affiliate; whether affiliate reasonably believes that it is a client
of the lawyer; whether the affiliate imparted confidential information
to the lawyer in expectation of representation; and whether the lawyer
may be required to regard the affiliate as a client due to the relationship
between the client and affiliate); N.Y. County Eth. Op. 684 (1991) (factors
as to whether representation of parent company extends to subsidiary
include whether either the parent or subsidiary reasonably believes that
an attorney-client relationship exists; whether counsel to the parent
is privy to confidential information about subsidiary that could be detrimental
to the subsidiary's interests; and whether the parent's interests would
be materially adversely affected by an action against its subsidiary).

In "thrust upon" conflict situations, application of the
factors articulated in the cited ethics opinions will often lead to the
conclusion that no conflict exists. For example, in Scenario 1 above,
Company B has become a subsidiary of a long-time firm Client C. If the
firm has no pre-existing relationship with Company B, is not representing
Company B at the time the purported conflict arises, was not involved
in the transaction whereby Company B became a subsidiary of Client C,
and the firm has not acquired confidences of Company B that are relevant
to the litigation, then, absent other factors, it may be that the firm
will be able to conclude that it does not have an attorney-client relationship
with Company B. As a result, there is no concurrent conflict and it would
be permitted to continue to represent Client A in litigation without
the consent of Company B or Client C.

The remainder of this opinion assumes that the unforeseen change of
circumstances does result in a concurrent conflict within the purview
of DR 5-105.

B. General rule requiring withdrawal where a consentable conflict
of interest exists between concurrent clients, and one or both clients
will not consent to the conflict.

Under the Code, a lawyer may not take on or continue the concurrent
representation of multiple clients if the representation would "involve
the lawyer in representing differing interests" or if "the
exercise of independent professional judgment in behalf of a client will
be or is likely to be adversely affected," unless the lawyer obtains
the consent of each client affected by the conflict. DR 5-105. It is
well settled that this means a lawyer may not oppose a current client
in any matter, even if the matter is totally unrelated to the firm's
representation of the client, without consent from both clients. See
e.g. Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384, 1387 (2d
Cir. 1976) (“[w]here the relationship [with a client] is a continuing
one, adverse representation is prima facie improper, and the attorney
must be prepared to show, at the very least, that there will be no actual
or apparent conflict in loyalties or diminution in the vigor of representation”)
(internal citation omitted); IBM v. Levin, 579 F.2d 271, 280
(3rd Cir. 1978) (it is “likely that some ‘adverse effect’ on
an attorney’s exercise of his independent judgment on behalf of
a client may result from the attorney’s adversary posture toward
that client in another legal matter). See also N.Y. City Eth.
Op. 2003-03. When faced with a thrust upon conflict under DR 5-105, therefore,
a lawyer would be unable to continue representing both clients without
violating the disciplinary rule, if the lawyer is unable to obtain consent.
Pursuant to DR 2-110(B)(2), a lawyer must withdraw from representing
a client where the representation would violate a disciplinary rule.
Therefore, ordinarily, when two clients will not consent to a conflict
of interest, and the conflict requires consent, the law firm must withdraw
from representation of at least one of the clients.

The New York disciplinary rules do not, on their face, indicate whether
an attorney must withdraw from both representations in conflict situations,
or whether the attorney may withdraw from representing only one client,
and if so, which one. The disciplinary rule that governs withdrawal,
DR 2-110(B)(2), merely states that a lawyer shall withdraw from employment
if ("[t]he lawyer knows or it is obvious that continued employment
will result in violation of a Disciplinary Rule." It sheds no light
on situations where the withdrawal to avoid violation of a disciplinary
rule involves more than one client.

Previous ethics opinions that have addressed withdrawal have similarly
shed little light on how an attorney should withdraw from representation
when a conflict has arisen that involves two current clients in the contexts
that we address. A few ethics opinions construing the New York Code have
mandated withdrawal from representation of more than one client, but
all are distinguishable. These situations generally involved joint representation
of clients with divergent interests on the same side of a matter, or
situations where attorney knowledge of confidential information affected
the attorney's ability to continue representing both clients. See,
e.g., N.Y. City Eth. Op. 1990-1 (if a non-waivable conflict develops
during the course of joint representation of two clients, the attorney
may be forced to withdraw from both representations); N.Y.S. Eth. Op.
761 (2003) (if a lawyer receives relevant confidential information from
one co-client that the lawyer is unable to share with the other co-client
in joint representation, the lawyer must withdraw from representing both
clients); N.Y. County Eth. Op. 707 (1995) (lawyer who represents two
clients on the same side of a matter should withdraw from both representations
if the lawyer learned confidential information of the dropped client
that is material to the proposed remaining client's representation);
N.Y.S. Eth. Op. 592 (1988) (lawyer must withdraw from representing two
clients in separate criminal cases, where the lawyer obtained confidential
information that materially affected both representations)

The New York disciplinary rules governing former client conflicts also
do not directly state whether a lawyer may, in order to avoid a material
conflict between two current clients, withdraw from representing one
client (thereby creating a "former client") and continue to
represent the other. Under DR 5-108(A), a lawyer may not represent a
client adverse to a former client without consent in the same or substantially
related matter, where the current client's interests are materially adverse
to the interests of the former client. If the matters are not substantially
related, however, the lawyer may continue to represent a client even
if that client is directly adverse to a former client, as long as the
representation does not violate the lawyer's duty of confidentiality
to the former client.

C. Determining which matter to withdraw from

Since the ethics rules do not instruct lawyers how to determine from
which client to withdraw when faced with a current client conflict that
violates DR 5-105, lawyers confronting this situation must be guided
by the duties of confidentiality and loyalty to the client. Under the
Code, the duty of confidentiality extends to both current and former
clients. DR 4-101(B); DR 5-108(A)(2). If the conflict of interest between
two current clients arises because the lawyer possesses confidential
information, and consent cannot be obtained, the lawyer normally must
withdraw from the affected representation. See generally N.Y.
City Eth. Op. 2005-02 (discussing duty of confidentiality). In circumstances
where material confidential information is involved, or there is a substantial
relationship between the two matters, a lawyer probably cannot solve
the conflict merely by withdrawing from representing one client and continuing
to represent the other, because the continuing representation would most
likely still violate the rules regarding former client conflicts.

The duty of loyalty is also central to the ethical rules in Canon 5
prohibiting a lawyer from representing multiple clients with differing
interests. "Maintaining the independence of professional judgment
required of a lawyer precludes acceptance or continuation of employment
that will adversely affect the lawyer's judgment on behalf of or dilute
the lawyer's loyalty to the client." EC 5-14. And as explained by
EC 5-1, "[t]he professional judgment of a lawyer should be exercised,
within the bounds of the law, solely for the benefit of the client and
free of compromising influences and loyalties. Neither the lawyer's personal
interest, the interests of other clients, nor the desires of third persons
should be permitted to dilute the lawyer's loyalty to the client." See
also ABA Formal Op. No. 92-367 (1992) (“[u]nderlying the ethical
prohibition [of Model Rule 1.7(a)] is the precept that the lawyer’s
duty of loyalty demands that a client not be concerned with whether the
lawyer may subconsciously be influenced by the differing interests of
another”); Cinema 5 Ltd. v. Cinerama, Inc., 528 F.2d 1384,
1386 (2d Cir. 1976) (EC 5-1 and EC 5-14 "provide that the professional
judgment of a lawyer must be exercised solely for the benefit of his
client, free of compromising influences and loyalties, and this precludes
his acceptance of employment that will adversely affect his judgment
or dilute his loyalty"). Concurrent representation in particular “presents
the risk of divided loyalty to each client, portending constrained vigor
and impeding independent judgment on the lawyer’s part.” ABA
Annotated Model Rules of Professional Conduct 1.7 (5th ed. 2003) at 116.

While the Code may not expressly prevent a lawyer from dropping one
client in order to represent another, it is well-settled that the duty
of loyalty prevents an attorney from doing so opportunistically. For
example, under the so-called "hot-potato" rule, a lawyer or
law firm should not ordinarily be permitted to abandon one client in
order to take on the representation of a more lucrative client, where
representing both would create a conflict of interest. This approach
has been followed in several court cases involving attorney disqualification
motions, where courts have articulated the need to protect confidential
client information, as well as to protect the disfavored client from
being "cut adrift" simply because a more lucrative client comes
along with a claim against it. See, e.g., Hartford Accident
and Indemnity Co. v. RJR Nabisco, Inc., 721 F. Supp. 534, 540 (S.D.N.Y.
1989) (finding against disqualification, but discussing rule: "Clearly,
no court should condone such conduct [dropping the disfavored client
in attempt to avoid disqualification motion]; it smacks of disloyalty
where loyalty is owed, and notwithstanding the apparent elimination of
the conflict, there remains the possibility that former client confidences
will be abused"); In re Wingspread Corp., 152 B.R. 861,
864 (S.D.N.Y. 1993) (ruling against disqualification, but discussing
rule); AmSouth Bank, N.A. v. Drummond Co., 589 So. 2d 715, 721-722
(Ala. 1991) (finding against disqualification, but discussing rule: “a
law firm should not be allowed to abandon its absolute duty of loyalty
to one of its clients so that it can benefit from a conflict of interest
that it has created”).

The "hot potato" rule prohibiting the abandonment of a current
client to take on a more lucrative representation is a salutary one,
but it is not commanded by the text of the Code or the ABA Model Rules
and should not apply to situations where its underlying rationale would
not be served. The rule condemns affirmative self-interested acts of
disloyalty by an attorney to an existing client in order to switch allegiance
to a new one. In circumstances where an attorney is representing two
clients, and an unforeseeable conflict between the two arises during
the ongoing representation of both, concerns about opportunistic attorney
activity are less evident: by definition, the problem was "thrust
upon" the lawyer.

Many courts have also found that the duty of loyalty concerns underpinning
the “hot potato” rule are not present in the “thrust
upon” situation where the lawyer has not instigated the conflict
or deliberately sought to abandon a client. In addition, in the current
business climate, corporate mergers and acquisitions occur with sufficient
regularity that conflicts of interests between two clients will often
arise unexpectedly and through no fault of the lawyer, creating conflict
situations that are not governed by the “hot potato” rule.
Consequently, many courts have applied a flexible approach to “thrust
upon” situations that focuses on balancing the interests of all
affected parties rather than mechanically applying the “hot potato” rule
to prevent a lawyer from withdrawing from one client in order to continue
representing the other. See, e.g., Installation Software Technologies,
v. Wise Solutions, 2004 WL 524829 at *4 (N.D. Ill. 2004) (applying
a flexible approach to the resolution of a conflict arising out of a
corporate acquisition, balancing several factors including (i) prejudice,
(ii) cost, (iii) the complexity of the case, and (iv) the origin of the
conflict); Eastman Kodak Co. v. Sony Corp., 2004 WL 2984297
at *7 (W.D.N.Y. 2004) (holding that “the ‘flexible approach’ provides
a far more practical framework to disqualification issues generated by
mergers and acquisitions than the rigid ‘hot potato’ rule,” but
balancing the interests in favor of disqualification); Hartford Accident
and Indemnity Co., 721 F. Supp. at 541 (where a conflict arose because
the plaintiff’s law firm’s former partner represented the
defendant, the court held that where there is no threat of actual prejudice,
only a “wooden application” of the disciplinary canons would
support disqualification); AmSouth Bank , 589 So. 2d at 722
(where the law firm did not play a role originally in creating the conflict,
the court followed a “common sense” approach and found that
the law firm may avoid disqualification by “moving swiftly to withdraw
from its representation” to minimize prejudice to each client concerned); Gould,
Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121, 1126-27
(N.D. Ohio 1990) (applying balanced approach in ruling against disqualification
in situation where the conflict of interest was created by an acquisition
of the client, and not by the law firm).

Nothing in the Code bars an attorney from employing similar reasoning
in carrying out the obligations of Canons 2 and 5. When confronted with
a "thrust upon" concurrent client conflict, lawyers should
balance several factors in deciding whether they may withdraw from one
representation and continue the other, and if so, which client to continue
representing. Of course, absent consent, an attorney should not simply
withdraw from a representation and continue an adverse one where doing
so would compromise material confidences and secrets of what would become
the former client. See DR 5-108. Because thrust upon conflicts
typically involve totally unrelated matters, however, the requirement
of protecting confidences of an ex-client will not always command a particular
result. Where confidences will not be placed at risk, the overriding
factor should be the prejudice the withdrawal or continued representation
will cause the parties, including whether representation of one client
over the other would give an unfair advantage to a client. The lawyer
must also consider other factors, for example, the origin of the conflict
(i.e., which client's action caused the conflict to arise);
whether one client has manipulated the conflict to try to force a lawyer
off the matter and is using the conflict as leverage; the costs and inconvenience
to the party being required to obtain new counsel, including the complexity
of the representation; whether the choice would diminish the lawyer's
vigor of representation toward the remaining client; and, the lawyer’s
overall relationship to each client.

The commentary to the Model Rules supports this approach. As under
the New York Code, the ABA Model Rules generally prohibit a lawyer from
continuing to represent a client where that representation would be directly
adverse to another client, or where a significant risk exists that the
representation would be materially limited by the lawyer's responsibilities
to the other client.3 Model Rule
1.7(a). However, the commentary to Model Rule 1.7 suggests that in cases
in which a conflict arises during the course of representation, and where
the conflict was the result of "[u]nforeseeable developments, such
as changes in corporate and other organizational affiliations," the
lawyer may have the option to withdraw from one of the representations
in order to avoid the conflict. Model Rule 1.7 Comment [5]. The District
of Columbia ethics rules, which are based on the Model Rules, have taken
this one step further and adopted an express "thrust upon" exception
to the general prohibition against simultaneously representing two clients
whose interests are directly adverse. DC Rule 1.7(d) provides that where
certain concurrent conflicts are not reasonably foreseeable at the outset
of representation, a lawyer should seek the opposing party’s consent
to the conflict, but if such consent is not given by the opposing party,
the lawyer need not withdraw despite the opposing party’s objection.
See D.C. Eth. Op. 292 (1999) (interpreting Rule 1.7(d)).

The Restatement also supports a lawyer's ability to withdraw "in
order to continue an adverse representation against a theretofore existing
client when the matter giving rise to the conflict and requiring withdrawal
comes about through initiative of the clients" so long as the situation
causing the conflict was not “reasonably foreseeable” by
the lawyer when the lawyer first undertook the representation of the
client. Restatement (Third) of the Law Governing Lawyers § 132 cmt.
j.

The application of this approach is illustrated by the court cases
cited above. In Installation Software Technologies, 2004 WL
524829, for example, a conflict of interest arose when a current client
of the law firm representing the plaintiff acquired the defendant and
then refused to consent to the dual representation. The plaintiff’s
law firm sought guidance from the court by moving for permission to withdraw
or for “other relief.” The court denied the motion to withdraw
after balancing (i) the prejudice to the non-consenting client, including
whether its confidential information was at risk if the law firm stayed
in the case; (ii) the financial costs to the plaintiff if it was forced
to retain new counsel in the matter (iii) the complexity of the matter,
and (iv) the origin of the conflict so as to ensure that the “‘conflict
by acquisition’ . . . [did] not become a means for [the defendant]
to strategically disadvantage [the plaintiff].” 2004 WL 524829
at *6.

Another example is Gould, Inc. v. Mitsui Mining & Smelting
Co. In Gould , a conflict of interest for plaintiff’s
counsel arose several years after litigation had commenced, when the
defendant acquired a company, IGT, that plaintiff’s counsel represented
in unrelated matters. The defendant moved to disqualify plaintiff’s
counsel, but the court rejected the motion. In doing so, the court
refused to mechanically apply the “hot potato” rule, and
took a more flexible approach that balanced the various interests involved.
First, the court found that the defendant had not been prejudiced because
confidential information had not passed to the plaintiff as a result
of plaintiff’s firm’s representation of IGT. Second, disqualifying
plaintiff’s firm would cost plaintiff a great deal of time and
money in retaining new counsel and would significantly delay the progress
of the case, which involved complex technological issues. Finally,
the court found that the conflict was created by defendant’s
acquisition of IGT several years after the current litigation commenced,
and not by any affirmative act of plaintiff’s law firm. Gould,
Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121, 1126-27
(N.D. Ohio 1990); see also University of Rochester v. G.D. Searle & Co., 2000
WL 1922271 (W.D.N.Y. 2000) (ruling against disqualification); Carlyle
Towers Condominium Association, Inc. v. Crossland Savings, FSB,
944 F. Supp. 341 (D.N.J. 1996) (ruling against disqualification); AmSouth
Bank, N.A. v. Drummond Co., 589 So. 2d 715, 722 (Ala. 1991) (ruling
against disqualification).

The scenarios set forth at the outset of this opinion illustrate how
these factors may be applied in specific situations. Scenarios 1 and
2 involve situations where a current client has, through a merger or
acquisition, become adverse to another client that is a member of the
same corporate family. Depending on, among other things, the relationship
between Company B and Client C in Scenario 1, and Company C and Client
A in Scenario 2, the adversary may or may not be considered a "client" for
conflicts purposes. See cases cited supra. on when a corporate
affiliate becomes a client for conflicts purposes.

Assuming that a conflict does exist between the clients, however, the
law firm would need to balance the factors outlined above in determining
which client to represent. For example, in Scenario 1, the law firm would
first need to determine who would be most prejudiced by the withdrawal.
This would depend in part on the complexity of the breach of contract
suit against B and how close to trial the suit is. The closer the suit
is to trial, the more Client A would be prejudiced if the law firm withdrew
from representation. In contrast, if the law firm had only recently been
retained to represent Client A in the breach of contract suit and had
yet to engage in extensive discovery, the prejudice to Client A from
withdrawal would not be as great. Other factors that would determine
which client would be most prejudiced involve, for example, the financial
costs to each and whether the lawyer has acquired material confidential
information that could be used against the client from whom the lawyer
withdraws. In addition, because Client C created the conflict, the law
firm should question whether Client C is seeking to use the conflict
as leverage to force the law firm off the case involving Client A. As
noted in Installation Software, a “conflict by acquisition” should
not give the acquiring client a means to strategically disadvantage Client
A, who is in effect an innocent bystander with respect to Client C’s
acquisition of Client A’s adversary (Company B). More broadly,
we believe that it will generally appear fairer and more understandable
to a client whose lawyer withdraws because of a conflict if the client's
action gave rise to the conflict in the first place.

At the same time, if Client C is a large, important client of the firm,
the law firm must be wary in applying the balancing test that it is not
motivated by purely economic factors to retain Client C. After weighing
all of the factors, if the law firm decides that the balancing test favors
Client C, it should inform Client A that due to a conflict of interest
it must withdraw from representing that client in the law suit against
Company B. If the law firm concludes that the factors weigh in favor
of Client A, it should inform Client C that it will not withdraw from
representing Client A in the breach of contract suit. At that point,
it will be up to Client C to decide whether it wishes to consent to the
conflict after all, or terminate its relationship with the law firm.

D. Limitations to Opinion

This opinion is not intended to apply other than in cases of a "thrust
upon" conflict as defined above.

First, the conflict must truly be unforeseeable. This requirement will
often be satisfied in the merger and acquisitions context, as in Scenarios
1 and 2, as long as the law firm represented both clients before the
corporate transaction occurred or before the law firm knew it was under
consideration. It could be satisfied in other contexts when, for example,
a current client unexpectedly appears in an adverse capacity in a government
investigation.

Second, the conflict must truly be no fault of the lawyer. So, for
example, if the conflict arose because the lawyer did an inadequate conflicts
check originally by, for example, failing to check necessary individuals
or entities, failing to spell the names of the clients accurately when
putting information into a database or by other conduct that is negligent,
this opinion does not apply. See, e.g,. N.Y. City Eth. Op. 2003-03
(describing what records a law firm must keep and what policies and systems
the firm must implement in order to do adequate conflicts checks).

Third, the conflict must be between concurrent clients. The rules governing
when a current client becomes a former client for conflicts purposes
are beyond the scope of this opinion but in determining whether this
opinion applies the lawyer must consider whether even a client for whom
the lawyer has done no work for a significant period of time is, in fact,
a current client under the conflicts rules. This analysis involves a
delicate fact-specific inquiry. See, e.g. International Business
Machines Corp. v. Levin, 579 F.2d 271, 281 (3d Cir. 1978) (“[a]lthough
CBM had no specific assignment from IBM on hand on the day the antitrust
complaint was filed . . . the pattern of repeated retainers, both before
and after the filing of the complaint, supports the finding of a continuous
relationship”); Oxford Systems, inc. v. CellPro, Inc.
45 F. Supp. 2d 1055, 1060 (W.D. Wash. 1999) (law firm that represented
a client intermittently from 1985 to May 1997 deemed still to represent
that client in April 1998 though no matters were then currently pending); S.W.S.
Financial Fund A v. Salomon Bros., Inc., 790 F. Supp. 1392, 1398
(N.D. Ill. 1992) (“once established, a lawyer-client relationship
does not terminate easily,” quoting the comment to ABA M.R. 1.3); Shearing
v. Allergan, Inc., 1994 WL 382450 (D. Nev. 1994) (client represented
by law firm intermittently over 13 years but which had not given work
to firm for more than a year was still a current client for conflict
purposes); . See also D.C. Bar Ethics Opinion 292 (1999) (where
a law firm represents a client on an ongoing basis on a discrete legal
issue that may be raised in multiple proceedings and involves common
facts, legal theories, parties, claims and defenses, the representation
begins when the law firm first begins to provide these legal services,
not when the particular matter that led to the conflict began).

Of course, attorneys must keep in mind that the continued representation
of one client after withdrawing from the other must still satisfy DR
5-108, the rule governing former client conflicts. See DR 5-108; Restatement
(Third) of the Law Governing Lawyers § 132 cmt. j (continuing an
adverse representation against a theretofore existing client "must
be otherwise consistent with the former-client conflict rules").
In particular, the confidences and secrets of the former client must
be protected, and no attorney may continue an adverse representation,
without court approval, even in a “thrust upon” situation,
in which material confidences and secrets of either client (or former
client) will be placed at risk.

Finally, implementation of the balancing test for thrust upon conflicts
must be performed in good faith. Where the attorney's decision regarding
withdrawal appears opportunistic, for example the retained client generates
significantly more fees than the dropped client and there are no other
factors that weigh in favor of retaining that client, any insistence
that the conflict was thrust upon the lawyer, or protestations of prejudice
to the major client, may be viewed skeptically. On the other hand, a
lawyer who does balance the relevant considerations in good faith should
not be subject to discipline for getting it wrong in hindsight.

E. Prophylactic Measures

Lawyers may take several steps to anticipate and potentially avoid
concurrent client conflicts. In particular, some conflicts may be avoided
by obtaining advance consents from clients to waive conflicts that may
come up in the future. Of course, the fact that "thrust upon" conflicts
by definition are not reasonably foreseeable may make it particularly
difficult in some cases to obtain enforceable advance waivers. Nonetheless,
in appropriate instances clients can give informed and therefore effective
waivers in advance to a sufficiently described set of circumstances without
necessarily knowing all details or the identity of the other client. See N.Y.
City Eth. Op. 2004-02 (the lawyer seeking an advance waiver should be
as specific as possible regarding the types of possible future adverse
representations, the types of matters that might present conflicts, and
at least the class of potentially conflicted clients); see also N.Y.
County Eth. Op. 724 (1998); ABA Formal Op. No. 93-372 (1993).

In addition, attorneys may be able to draft the letter of engagement
to avoid uncertainty as to whether the representation is ongoing or not,
and who is the client. For example, the lawyer could clarify that he
or she only represents the client in a particular area or for a particular
matter, and representation in any other matter would necessitate a separate
agreement.4 Similarly, the lawyer
could clarify that he or she represents only specified entities within
the corporate family, and not current or future affiliates.

4. CONCLUSION

When, in the course of continuing representation of multiple clients,
a conflict arises through no fault of the lawyer that was not reasonably
foreseeable at the outset of the representation, does not involve the
exposure of material confidential information, and that cannot be resolved
by the consent of the clients, a lawyer is not invariably required to
withdraw from representing a client in the matter in which the conflict
has arisen. The lawyer should be guided by the factors identified in
this opinion in deciding from which representation to withdraw. In reaching
this decision, the overarching factor should be which client will suffer
the most prejudice as a consequence of withdrawal. In addition, the attorney
should consider the origin of the conflict, including the extent of opportunistic
maneuvering by one of the clients, the effect of withdrawal on the lawyer's
vigor of representation for the remaining client, and other factors mentioned
in this opinion.

Dated: Jun

471589.4

1. For a more in-depth discussion
of when conflicts are consentable, see, for example, N.Y. City Eth. Op.
2001-2 (addressing the circumstances in which it is permissible for a
lawyer to represent a client in a corporate transaction whose interests
are adverse to a client the lawyer represents in another matter, and
both clients consent); N.Y. County Eth. Op. 671 (1989) (addressing the
circumstances under which a lawyer who represents a corporate client
may represent a second client whose interests are adverse to the first
client, and both clients have consented).

3 .Model Rule 1.7 states: "(a)
Except as provided in paragraph (b), a lawyer shall not represent a client
if the representation involves a concurrent conflict of interest. A concurrent
conflict of interest exists if: (1) the representation of one client
will be directly adverse to another client; or (2) there is a significant
risk that the representation of one or more clients will be materially
limited by the lawyer's responsibilities to another client, a former
client or a third person or by a personal interest of the lawyer. (b)
Notwithstanding the existence of a concurrent conflict of interest under
paragraph (a), a lawyer may represent a client if: … (4) each
affected client gives informed consent, confirmed in writing."

4 . For a more in-depth discussion
of the circumstances in which a conflict of interest may be avoided by
limiting the scope of a lawyer's representation of a client, see N.Y.
City Eth. Op. 2001-3 (the scope of a lawyer's representation of a client
may be limited in order to avoid a potential future conflict, provided
that the client consents to a limited engagement after full disclosure,
and the limitation does not render the lawyer's counsel inadequate or
diminish the zeal of representation).